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Underreporting of Earnings and the Minimum Wage Spike

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  • Tonin, Mirco

    (Free University of Bozen/Bolzano)

Abstract

This paper documents a positive correlation within European labour markets between the proportion of full-time employees with earnings on the minimum wage and the extent of underreporting of earnings in the economy. Using a simple model of a competitive labour market, I show how this correlation can emerge as a result of the common dependence of both quantities on the strength of enforcement of fiscal regulation. This suggests that a high spike in the wage distribution at the minimum wage level is, in some contexts, an issue of fiscal enforcement, more than a labour market issue.

Suggested Citation

  • Tonin, Mirco, 2011. "Underreporting of Earnings and the Minimum Wage Spike," IZA Discussion Papers 5942, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5942
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    8. Tonin, Mirco, 2011. "Minimum wage and tax evasion: Theory and evidence," Journal of Public Economics, Elsevier, vol. 95(11), pages 1635-1651.
    9. Lemos, Sara, 2009. "Minimum wage effects in a developing country," Labour Economics, Elsevier, vol. 16(2), pages 224-237, April.
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    12. Colin C. Williams & Sara Nadin, 2012. "Tackling Undeclared Work in the European Union," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(02), pages 20-25, July.
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    Cited by:

    1. Gavoille, Nicolas & Zasova, Anna, 2023. "What we pay in the shadows: Labor tax evasion, minimum wage hike and employment," Journal of Public Economics, Elsevier, vol. 228(C).
    2. Nicolas Gavoille & Anna Zasova, 2021. "Minimum wage spike and income underreporting: a back-of-the-envelope-wage analysis," SSE Riga/BICEPS Research Papers 7, Baltic International Centre for Economic Policy Studies (BICEPS);Stockholm School of Economics in Riga (SSE Riga).
    3. Nicolas Gavoille & Anna Zasova, 2021. "What we pay in the shadows: Labor tax evasion, minimum wage hike and employment," SSE Riga/BICEPS Research Papers 6, Baltic International Centre for Economic Policy Studies (BICEPS);Stockholm School of Economics in Riga (SSE Riga).
    4. Bíró, Anikó & Prinz, Dániel & Sándor, László, 2022. "The minimum wage, informal pay, and tax enforcement," Journal of Public Economics, Elsevier, vol. 215(C).
    5. Clemens, Jeffrey & Strain, Michael R., 2022. "Understanding “Wage Theft”: Evasion and avoidance responses to minimum wage increases," Labour Economics, Elsevier, vol. 79(C).
    6. Konstantins Benkovskis & Ludmila Fadejeva & Anna Pluta & Anna Zasova, 2023. "Keeping the best of two worlds: Linking CGE and microsimulation models for policy analysis," Working Papers 2023/01, Latvijas Banka.
    7. Gavoille, Nicolas & Zasova, Anna, 2023. "Minimum wage spike and income underreporting: A back-of-the-envelope-wage analysis," Journal of Comparative Economics, Elsevier, vol. 51(1), pages 372-402.
    8. Anna Lukiyanova, 2011. "Effects of Minimum Wages on the Russian Wage Distribution," HSE Working papers WP BRP 09/EC/2011, National Research University Higher School of Economics.
    9. Clemens, Jeffrey & Strain, Michael R., 2023. "Does Wage Theft Vary by Demographic Group? Evidence from Minimum Wage Increases," IZA Discussion Papers 16550, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    lighthouse effect; minimum wage; spike; underreporting;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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